The annual APEC summit in Yokohama, Japan, 13/14th November, brought together leaders from the Asia Pacific region to consider critical regional and global economic and financial challenges and to consider a report on progress achieved in meeting the APEC Bogor goals, first agreed in 1994. Leaders noted that developed member economies had made significant progress in achieving open trade and investment flows. The progress achieved contributes to the prosperity of the region and to the region’s influence in global terms.

The cumulative success of APEC strengthens the resolve to support actions to promote regional economic integration, economic growth and economic security. APEC will take concrete steps to develop a Free Trade Area of the Asia-Pacific (FTAAP), to develop and build on current and ongoing regional initiatives, including the Trans-Pacific Partnership.

Leaders committed to moving "toward more market determined exchange rate systems and enhance exchange rate flexibility to reflect underlying economic funamentals and will refrain from competitive devaluation of currencies." APEC’s structural reform agenda – supported by Australia and others - will be enhanced by the creation of the APEC New Strategy for Structural Reform (ANSSR). Leaders committed to achieving socially optimal growth.

PERSPECTIVE: by Chris Barnes, National President of the Australia Indonesia Business Council

An Economic Partnership Agreement (EPA) between Australia and Indonesia will be entirely consistent with APEC’s objectives of facilitating economic growth, cooperation and trade and investment in the Asia Pacific region. Chris Barnes, comments on how an EPA can deepen the business relationship between Australia and Indonesia.

With a population of approximately 240 million, Indonesia has a strong and vibrant internal market. Coupled with increasingly effective economic management, Indonesia has largely avoided the economic downturns recently experienced by other countries. In September 2010, the Asian Development Bank revised its 2010 forecast for GDP growth in Indonesia upwards to 6.1 percent and projected 2011 growth at 6.3 percent.

Indonesia’s strong economic growth and its ability to largely sidestep the global financial crisis have not gone unnoticed. Analysts are now using terms such as “Chindonesia” and are referring to Indonesia as the second “I” in “BRIIC”.

There are around 400 Australian companies that have successfully invested in Indonesia including the Commonwealth Bank of Australia, ANZ, Thiess, Ramsay Health Care and Coca-Cola Amatil. In a strong signal of foreign investor confidence, Orica recently announced a USD550 million investment in the construction of an industrial grade ammonium nitrate plant in east Kalimantan with PT Kaltim Nitrate Indonesia. Foreign direct investment (FDI) is expected to top US$13 billion in 2010.

This level of FDI, however, is still underweight and not widespread enough. Indonesia still does not attract FDI levels commensurate with an economy of its size. In the World Bank’s Doing Business in 2010 report, Indonesia ranks 122 out of 181 countries on the Ease of Doing Business Index. This is a slight improvement on 2009 rankings, however still places Indonesia in the Index’s lowest third.

Indonesia is an emerging star within APEC – or to borrow a term from a recent New York Times article, “economic golden child” – in terms of the bilateral economic relationship, Indonesia ranks as Australia’s 13th largest trading partner and Australia ranks 11th in terms of foreign investment in Indonesia. Yet we are neighbours with complementary skills, resources and markets and we are both G20 nations. Why is the economic relationship underperforming? And more importantly, what can we do about it? How can we deepen the economic relationship between Australia and Indonesia as two APEC economies?

Australia and Indonesia’s government-to-government relationship is in excellent shape. The visit by Indonesia’s President Susilo Bambang Yudhoyono to Australia in March 2010 was an outstanding success, and since November 2007 there have been more than 70 bilateral ministerial meetings. Australian and Indonesian government officials are talking more often than they ever done have before, in more positive ways than ever and about a broader range of issues; in bilateral, regional and international forums, Australia and Indonesia address topics from climate change to irregular migration and share best practices on themes from taxation to anti-terrorism strategies.

In his speech to the joint sitting of the Australian Parliament on 10 March 2010, President Susilo Bambang Yudhoyono made raised important points which are crucial to Australia and Indonesia’s economic relationship. Firstly, he made the observed that Australia has more “Indonesianists” working in its government, in its universities and in its think-thanks than any other Western country. The President also said, “We are just not neighbours, we are not just friends, we are strategic partners”.

If our government-to-government relationship is so good, why does the business-to-business relationship lag so significantly?

The communiqué from the Australia Indonesia Bilateral Conference held in Sydney in February 2009 stated that “It is not that Australian companies don’t want to invest in Indonesia. It’s just that Indonesia makes it so hard. International investors have alternative markets”. So whilst Indonesia is earning an international reputation as “economic golden child”, more reforms are needed to attract the attention of international investors generally, and Australian investors in particular.

Both the Australian and Indonesian governments have recognised that there are barriers for Australian and Indonesian companies in terms of two-way trade. A feasibility study into a potential Free Tree Agreement (FTA) between Australia and Indonesia was released in February 2009. However, since President Yudhoyono’s visit to Australia in early 2010, a potential FTA has undergone a change of name, and one that is not merely cosmetic. Both governments are now referring to an Economic Partnership Agreement (EPA). Australian companies have indicated their support for this agreement through the Australia Indonesia Business Council, and the concept of an EPA is gaining increasing support from Indonesian firms through the Indonesia Australia Business Council and KADIN, the Indonesian Chamber of Commerce and Industry. The Australia Indonesia Business Council has urged both governments to agree to the commencement of negotiations as soon as possible.

The difference between an EPA and a FTA is profound. An EPA is not just about Australian and Indonesian businesses working together with their respective governments to identify and eliminate the main barriers to trade. The scope of an EPA covers investment; deals with difficult “beyond the border” issues that frustrate business; and importantly, an EPA can deliver significant capability transfer initiatives that truly underscore the term “partnership”.

An EPA will allow Australian and Indonesian companies to see each other less as competitors and more as partners in a global supply chain. Examples abound: surfwear designed on the Gold Coast, manufactured in Bandung and sold in department stores around the world; cattle bred in Australia, slaughtered in Indonesia and sold in Malaysia and the Middle East. As well as focusing on reducing traditional trade barriers, an EPA would facilitate new and innovative opportunities for trade, investment and business cooperation between firms in both economies.

Most importantly, an EPA is as much about the development of a framework of engagement as it is about outcomes. It provides a formal, and hopefully an informal, mechanism for Australian and Indonesian businesses to engage on the opportunities for partnership between the two economies. This is what will lead to not just a neighbourly relationship, not just a friendly relationship, but to a true strategic partnership between two complementary economies in a global economy.

In achieving this partnership, Australia and Indonesia will not only enhance their economies but will also help deliver the APEC vision for greater economic integration in our region.

Chris is National President of the Australia Indonesia Business Council (AIBC) - www.aibc.com.au - and a director of the International Chamber of Commerce (ICC) in Australia.

This article was drawn from an address Ken Waller made as a guest speaker to a Singaporean IT delegation which visited Melbourne and whose program was organised by Invest Victoria on 3rd November.

Across the APEC region, service sectors account for around 68% of value added GDP and 60% of total employment. In higher growth economies, these sectors especially are well developed, consisting of major services such as transport, logistics, education, and professional services such as legal, architecture, accounting and IT. These sectors are critical to economic activity because they facilitate all economic actions, and thus are major contributors to productivity growth and to higher living standards.

In recognising the importance of services, APEC, since its inception nearly 25 years ago, has developed policies to liberalise trade in services, as well as in goods, and in investment flows to make the business of services easier to undertake. Encouraged by a public policy framework that supports openness in trade and investment, there has been a massive growth in services trade and in the provision of services across the APEC region. Singapore and Australia are prime examples of the benefits that are provided by an open trade and investment policy environment.

Most recently, APEC has begun to focus on connectivity in services. The intention of this focus is to improve connectivity in part to drive efficiencies in supply chains regionally and globally but also to allow services to contribute further than they presently do to trade and production in the real economy. Barriers to improved connectivity include regulatory frameworks that governments impose on services and infrastructure facilities i.e. trade across borders, such as warehousing, cargo handling and port facilities. Regulations may be necessary to ensure competition, safety and good standards and in some case fair pricing, but they may also inhibit trade and commerce. The impose a cost to business and can be unpredictable in application.

APEC has identified common priorities which need to be addressed to improve connectivity. They include the need to:

reduce time and risk in moving goods and people

the need to allow greater penetration of IT services to facilitate trade across borders

improve transparency and predictability in regulations

improve coordination by government agencies within an economy and between economies.

The promotion of IT services specifically may be a matter for governments, for example, in the way terminology may be usid in handling the movement of goods and people across borders. It is also a matter for the IT industry itself in developing and promoting efficifient services. It is vital that businesses support governments in driving structural reform programs, reducing protectionism, opening economies to trade and investment flows and in bringing to the notice of governments, those regulations and practices which unnecessarily impede business activity and commerce. In the IT sector this would also almost certainly include business support for policies which promote the recognition of intellectual property rights and conformance with agreed best standards and practices in manufacturing and in the delivery of services.

IT will transform health and education delivery systems across APEC economies and it will contribute to minimizing the devastating impact of natural disasters. APEC is deeply involved in promoting economic growth and employment and social advancement through its various action plans. The IT sector’s participation in helping achieve this is particularly importance.

Improving supply chain connectivity across APEC economies through open and competitive services

ANALYSIS: by Kristen Bondietti, Principal Consultant at ITS Global.

APEC Member economies have recognised the crucial role supply chain connectivity plays in moving goods across borders. The role of efficient, open and competitive services in supporting this however, has not been directly addressed. It is not yet fully understood by policymakers.

Broadly-based policy approaches to supply chain connectivity are needed to reap the benefits of more open trade. Effective strategies to address impediments to trade imposed by lack of coordination in services at the border are vital.

The Australian APEC Study Centre delivered a training program in September for APEC officials to support improvements in supply chain connectivity through open and competitive services. The program was delivered under the AusAID-funded Public Sector Linkages Program (PSLP) for officials from Indonesia, The Philippines, Thailand, China and Vietnam. Short training workshops were held in Manila and also in Hanoi with the assistance of RMIT Vietnam.

The training was targeted at promoting awareness among APEC developing economies of the economic gains from improving efficiency across the supply chain through liberalisation of services. It focused on services that directly impact on the trade across borders which are important but not often discussed - warehousing, freight forwarding, cargo and port services. A key component of the program was developing integrated approaches to trade facilitation among attending economies.

The contribution of the program to the current policy discussion on supply chain connectivity was reflected in the quality and breadth of the course presenters and participants. Academics and experts from the Asian Development Bank, the University of Asia and the Pacific, the University of Indonesia, the University of Singapore, the Asian Institute of Management, the RIS research institute in India and the private sector contributed to course lectures and research materials. Participants from all economies rated the program highly –noting its unique focus and commending its utility for broader policy development in national economies.

While supply chain is currently a buzz word among APEC, contemporary, detailed research work on the role of open services in connectivity is still limited. An important outcome of the training delivered was recognition of the need for more research and deeper discussion among APEC economies on this topic. Another was the need for further training in which to best equip policy makers in the region with the capacity to drive effective policy consistent with APEC’s goals of open and competitive markets.

Kristen Bondietti was the Academic Coordinator for the program. More information about the program can be found on the RMIT website.

In June, the Centre conducted a joint program with the Asia Finance and Development Centre (AFDC) in Shanghai, involving regional banking regulators and policy makers from Chile, China, Indonesia, Malaysia, Mexico, Peru, Papua New Guinea, Philippines, Russia, Thailand and Vietnam. The program was designed to enhance understanding of challenges in implementing financial system regulatory reforms.
The program brought together experts from some regional regulatory agencies, the International Monetary Fund, the Asian Development Bank, the Bank for International Settlements, and senior representatives of the region’s banks, with participants from APEC regional economies, in interactive sessions, involving presentations, panel discussions and case study work.

More recently, the Centre concluded two programs, based in Hanoi and Manila, aimed at raising awareness among APEC developing economies China, Indonesia, Philippines, Thailand and Vietnam of the economic gains from improving efficiency across the supply chain through liberalisation of services. These programs brought together supply chain experts from the ADB, BDP International, Research and Information System for Developing Countries (RIS), the Asian Institute of Management, and regional universities.

The Centre's Director Ken Waller has been contributing to the APEC SME Crisis Center's monthly Monitor, which keeps track of circumstances affecting small and medium enterprises (SMEs) globally through the utilisation of global experts. The Center itself has been established in order to assist SMEs maintain awareness of the possible risks and crises that may affect them, especially after the events of the Global Financial Crisis.